Tuesday, April 12, 2016

LONDON (Bloomberg) -- Oil climbed to a four-month high in London as forecasts for lower U.S. shale production signaled the global oversupply will slowly diminish.

Brent advanced 1.6% to the highest since Dec. 4. Output from U.S. shale will drop to 4.84 MMbopd in May, the lowest level in almost two years, according to a report on Monday from the Energy Information Administration. Still, crude inventories probably rose by 1 MMbbl last week, remaining near the highest level since 1930, according to a Bloomberg survey before another report from the EIA on Wednesday.

“There is such overwhelming consensus in this market that we’re grinding higher because the story of supply faltering is starting to play out,” said Seth Kleinman, head of European energy research at Citigroup Inc. in London.

Oil has rebounded after falling to the lowest level in more than 12 years amid signs a global glut will ease as U.S. output declines. Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, said it will agree to an output freeze only if it’s joined by other suppliers including Iran, while Kuwait said a deal can be done without Tehran’s support. OPEC members plan to meet with other major producers, including Russia, to discuss a freeze in the Qatari capital of Doha on April 17.

Brent for June settlement advanced as much as 70 cents to $43.53/bbl on the London-based ICE Futures Europe exchange. The contracts rose 89 cents, or 2.1%, to close at $42.83 Monday. The global benchmark was at a $1.21 premium to WTI for June.

U.S. Output

West Texas Intermediate for May delivery was at $40.83/bbl on the New York Mercantile Exchange, up 47 cents, at 9:26 a.m. London time. The contract climbed 64 cents to $40.36 on Monday. Total volume traded was 19% below the 100-day average.

“We’ve now seen prices that are low enough that we’re starting to see a response on the supply side,” John Watson, chairman and CEO at Chevron Corp., said at a conference in Perth, Australia. “We’re seeing the markets come back into better balance. It may take more time.